PATEL
JA: This
is an appeal against the judgment of the High Court ordering the
appellant to pay the outstanding amount due to the respondent in
United States dollars (USD) as opposed to its Real Time Gross
Settlement (RTGS) equivalent.
The
relevant background to this matter is as follows;
On
25 February 2016, the parties entered into an agreement for the sale
by the respondent to the appellant of its entire issued share capital
in a company named Milchem Zambia Limited (Milchem) for the sum of
USD46,347.00, payable on or before 31 March 2016. The appellant then
paid USD6,347.00 on an unspecified date and a further USD8,600.00 on
19 January 2018, leaving an outstanding balance of USD31,400.00. The
appellant contended that the balance remaining as at 19 January 2018
was USD15,400.00 and not USD31,400.00 as claimed by the respondent.
On
15 July 2019, the parties concluded a Statement of Agreed Facts in
which the appellant admitted that the sum of USD31,400.00 was still
to be paid. However, it now argued that the sum was payable in RTGS
and not in United States dollars.
The
sole issue for determination by the High Court was whether the
balance due was payable in United States dollars, following the
promulgation of the Presidential Powers (Temporary Measures)
(Amendment of Reserve Bank of Zimbabwe Act and Issue of Real Time
Gross Settlement Electronic Dollars (RTGS Dollars)) Regulations 2019
(S.I. 33/2019) and the Reserve Bank of Zimbabwe (Legal Tender)
Regulations 2019 (S.I. 142/2019).
Judgment
of the High Court
The
court a
quo
found that the sum of USD31,400.00 payable by the appellant to the
respondent did not fall under the auspices of section 4(1)(d) but
section 2(b) of S.I. 33 of 2019. This was the appellant's
obligation as denominated and payable in foreign currency to the
respondent. The court noted that in 2016 and 2017 the respondent had
written to the appellant providing the details of its Bank account
and the relevant IBAN and SWIFT codes. These codes applied to the
payments in foreign currency into Nostro FCA accounts.
Given
that the two payments already made by the appellant were by way of
cash in United States dollars, the conduct of the parties and that of
the appellant in particular showed that it was obliged to pay in
United States dollars, and in fact proceeded to do just that.
Additionally, the appellant's plea a
quo,
which was filed after it became aware of S.I.33 of 2019, stated that
it would pay the sum of USD15,400.00 to the respondent. Thus, the
obligation to settle the debt in United States dollars was both
explicit and implied by conduct.
The
currency governing the terms sheet (the written agreement) was United
States dollars and this was confirmed by paragraph 5 of the Statement
of Agreed Facts drawn up by the parties on 15 July 2019.
The
court also found that payment in foreign currency would not
contravene S.I. 142 of 2019 and would therefore not constitute a
brutum
fulmen.
In
the event, the appellant was ordered to pay the respondent the sum of
USD31,400.00 together with interest at the prescribed rate from 19
January 2018 and costs of suit on the ordinary scale.
Grounds
of Appeal
At
the commencement of the hearing, the Court pointed out the
mis-citation of a statutory provision referred to in the first ground
of appeal. The provision in question was incorrectly cited as section
3(2)(b) of S.I. 33 of 2019, instead of section 44C(2)(b) of the
Reserve Bank of Zimbabwe Act [Chapter
22:15].
This
error is understandable given the convoluted fashion in which S.I. 33
of 2019 is structured and formulated.
In
any event, the error was corrected by the Court by allowing the first
ground to be appropriately amended, with the consent of counsel for
the respondent.
The
first and second grounds of appeal take issue with the finding of the
court a
quo
that the outstanding debt of USD31,400.00 fell under the auspices of
section 44C(2)(b) of the Reserve Bank Act, and was therefore a
foreign obligation payable in foreign currency, rather than being a
local obligation, governed by section 4(1)(d) of S.I.33 of 2019, that
was payable in RTGS dollars.
The
third ground of appeal impugns the court a
quo
for having failed to appreciate that S.I. 142 of 2019 made it
impossible for the appellant to pay the sum of USD31,400.00 to the
respondent in foreign currency.
Foreign
or Local Obligation
The
critical provision to be interpreted in
casu
is section 44C of the Reserve Bank Act (as inserted by section 3(1)
of S.I. 33 of 2019).
Section
44C(1) empowers the Reserve Bank to issue or cause to be issued
electronic currency in Zimbabwe. Section 44C(2) provides as follows:
“The
issuance of any electronic currency shall not affect or apply in
respect of
–
(a)
funds
held in foreign currency designated accounts,
otherwise known as 'Nostro FCA Accounts', which shall continue to
be designated in such foreign currencies; and
(b)
foreign
loans and obligations denominated in any foreign currency,
which shall continue to be payable in such foreign currency.”(My
emphasis)
Section
4(1)(a) of S.I. 33 of 2019 provides for the issuance and operation of
an electronic currency, dubbed “the RTGS Dollar”, with effect
from the effective date, being the date of promulgation of S.I. 33 of
2019, i.e.
22 February 2019.
Paragraphs
(c), (d) and (e) of section 4(1) stipulate as follows:
“(c)
that such currency shall be legal tender within Zimbabwe from
the effective date;
and
(d)
that, for accounting and other purposes, all assets and liabilities
that were, immediately
before the effective date,
valued and expressed in United States dollars (other
than assets and liabilities referred to in section 44C(2) of the
principal Act)
shall
on
and after the effective date
be deemed to be values in RTGS dollars at a rate of one-to-one to the
United States dollar; and
(e)
that after
the effective date
any variance from the opening parity rate shall be determined from
time to time by the rate at which authorised dealers under the
Exchange Control Act exchange the RTGS Dollar for the United States
dollar on a willing-seller willing-buyer basis; and……...” (My
emphasis)
What
emerges clearly and unequivocally from section 44C(2)(b) of the
Reserve Bank Act, as read with section 4(1)(d) of S.I. 33 of 2019, is
that foreign loans and obligations denominated in any foreign
currency are excluded from the broad remit of S.I. 33 of 2019. Thus,
foreign loans and obligations continue to be valued and payable in
the foreign currency in which they are denominated.
Mr
Mutandwa,
for the appellant, submits that the debt in
casu
was a local obligation and not a foreign obligation within the
meaning of section 44C(2)(b) of the Reserve Bank Act.
For
a debt to be a foreign obligation the creditor must be resident
outside Zimbabwe. The nationality of the creditor is irrelevant and
it is his residence that matters.
The
respondent's declaration in the court below admits that it is a
resident of this country. It also has a registered office in Zimbabwe
as its place of business, as accepted in its further particulars.
Again, in terms of the written agreement between the parties, payment
by the appellant was to be made “in Zimbabwean US Dollar bank
account to be nominated” by the respondent. At the relevant time,
all bank accounts in Zimbabwe were designated in United States
dollars. The United Kingdom bank account details that were furnished
by the respondent were provided on 6 December 2016, well after the
effective date of the agreement, i.e.
25 February 2016.
Mr
Tivadar,
for the respondent, observes that in the appellant's plea, which
was filed on 28 February 2019, after the promulgation of S.I. 33 of
2019, the appellant prayed for an order requiring it to pay the
lesser “sum of US$15,400.00”. The court a
quo
found that the appellant was fully aware of the existence of S.I. 33
of 2019. The plea was not amended and, so submits Mr Tivadar,
it constitutes a firm irrevocable admission of the appellant's
liability to pay the outstanding debt in United States dollars.
Additionally, the two initial payments that were made by the
appellant, totalling USD14,947.00, were made in cash in United States
dollars.
The
respondent initially supplied the details of a United Kingdom
bank account, together with IBAN and SWIFT codes, which were
recognised by the court a
quo
as pertaining to FCA accounts. At a later stage, in its further
particulars, the respondent furnished the details of its local Nostro
FCA account. Such accounts are specifically referred to and excluded
from the scope of electronic RTGS transactions by section 44C(2)(a)
of the Reserve Bank Act.
As
regards the respondent's declaration a
quo,
Mr Tivadar
argues that the respondent's statement that it is “a company duly
[incorporated] according to the laws of the United Kingdom with an
office in Zimbabwe where it is resident” is somewhat ambiguous. The
Statement of Agreed Facts before the court a
quo
makes it clear that the respondent is “a foreign company registered
in terms of the British laws with a registered office in Zimbabwe”.
All that the respondent has is a business presence in Zimbabwe.
Having
regard to the factual circumstances preceding the institution of
proceedings a
quo
coupled with the conduct of the parties, it is abundantly clear that
it was the intention of both parties from the onset of their
transaction that the appellant's contractual obligation to pay the
respondent would be discharged in United States dollars.
Indeed
Mr Mutandwa,
in his replying submissions, quite properly conceded that until the
promulgation of S.I. 33 of 2019 the parties were fully agreed that
payment would be made in foreign currency.
What
is more contentious in
casu
is the status of the respondent in this country and the nature of the
transaction between the parties. These two issues are obviously
interrelated and need to be considered together in the context of
this appeal.
The
term “foreign loans and obligations denominated in any foreign
currency”, as it appears in section 44C(2) of the Reserve Bank Act,
is not defined in S.I. 33 of 2019 or in any other relevant
legislation that I am aware of. Its meaning in any given case must be
ascertained from the factual circumstances of the parties involved
and the material substance of the transaction that they have entered
into.
It
is common cause that the appellant is a local entity. On the other
hand, the status of the respondent is not self-evident from the
papers filed of record.
I
agree with Mr Tivadar
that the respondent's pleadings, i.e.
its declaration and further particulars, are ambivalent in this
regard. Its nationality, in as much as it is incorporated in the
United Kingdom, is obviously foreign. What is less clear is the
question of its residence and the nature of its physical presence in
Zimbabwe. This is obviously a question of fact. Nevertheless, some
guidance on this aspect can be gleaned from relevant statute law.
The
commercial operations and transactions of all companies, whether
foreign or local, are governed by our Company Law, both under statute
and at common law. At the time when the transaction between the
parties in
casu
was concluded, the relevant statutory provisions were contained in
the Companies Act [Chapter
24:03].
(They are now to be found in the Companies and Other Business
Entities Act [Chapter
24:31]
which came into operation on 13 February 2020, ninety days after its
publication on 15 November 2019).
Section
2 of the repealed Act defined a “foreign company” as “a company
or other association of persons incorporated outside Zimbabwe which
has established a place of business in Zimbabwe”. The term “place
of business” was defined in section 329 to mean “any place where
the company transacts or holds itself out as transacting business
……..”. The formalities and requirements for the registration of
a foreign company were stipulated in section 330. In essence, these
included the submission of certified copies of the company's
constituent instruments and the particulars of its directors resident
in Zimbabwe. Thereafter, the responsible Minister would issue a
certificate, subject to such conditions as he saw fit, authorising
the foreign company to establish a place of business in Zimbabwe.
In
the instant case, it is common cause that the respondent is a company
incorporated in the United Kingdom with a registered office or place
of business in Zimbabwe. The prescribed formalities for its
registration do not form part of the record and were obviously not in
issue in the proceedings a
quo.
In any event, it is undoubtedly a foreign company that was registered
and entitled to operate in Zimbabwe.
The
related question of residence in the country is indirectly addressed
in the Exchange Control Regulations 1996 (S.I. 109 of 1996, as
amended). Although these Regulations pertain principally to dealings
in foreign currency, they are also relevant to the determination of
questions of residence in Zimbabwe. In terms of section 3(1)(c) of
the Regulations, a company or other body corporate is to be regarded
as a Zimbabwean resident if “it is incorporated in Zimbabwe” or
“it has its head office or principal place of business in
Zimbabwe”.
In
casu,
it is abundantly clear that the respondent is neither incorporated in
Zimbabwe nor does it have its head office or principal place of
business in Zimbabwe.
By
virtue of the Companies Act as read with the Exchange Control
Regulations, it is quite evidently a non-resident foreign entity
operating in Zimbabwe.
As
regards the transaction between the parties, it is not in dispute
that what was sold by the respondent to the appellant was its entire
share capital in a foreign company located in a foreign country,
namely Zambia. In short, a foreigner sold a foreign asset to a local
company.
The
asset consisted of shares in a foreign company that could presumably
be sold abroad for foreign currency or, at any rate, in any currency
other than the currency of Zimbabwe.
What
the parties intended and what they transacted unquestionably gave
rise to a foreign obligation.
In
my view, it was not the intention behind S.I. 33 of 2019 to strike at
an obligation of the kind involved in this case.
Section
44C(2)(b) of the Reserve Bank Act, as inserted by section 3(1) of the
2019 Regulations, makes it clear that the issuance of any electronic
currency, i.e.
RTGS dollars, shall not affect or apply to any foreign obligation.
This is reinforced by section 4(1)(d) of the Regulations which
explicitly excludes foreign obligations valued and expressed in
United States dollars from the deemed parity valuation in RTGS
dollars.
To
conclude on this aspect, the currency of payment intended by the
parties was United States dollars. Moreover, the obligation incurred
by the appellant was a foreign obligation denominated in foreign
currency within the contemplation of S.I. 33 of 2019. That obligation
therefore continued to be payable in foreign currency, even after the
effective date, i.e.
22 February 2019. It follows that the first and second grounds of
appeal are without merit and must accordingly be dismissed.
Legality
of Payment in Foreign Currency
Mr
Mutandwa
initially took the stance that S.I. 33 of 2019 constituted a
supervening obstacle to the continued payment of the appellant's
obligation in United States dollars. He later conceded that, as at 22
February 2019, there was nothing to prevent the appellant from
discharging its obligation in foreign currency. However, he persisted
with the argument that following the promulgation of S.I. 142 of
2019, on 24 June 2019, the Zimbabwean dollar was the sole legal
tender for all local transactions in Zimbabwe.
Mr
Tivadar
submits that there was no supervening impossibility preventing
payments in foreign currency at any material time.
It
was legal for the parties to enter into an agreement for the payment
of United States dollars or any other foreign currency. Neither S.I.
33 of 2019 nor S.I. 142 of 2019 prohibited or precluded any such
payment.
Subject
to the broad impact of later restrictive measures introduced by
S.I.212 of 2019, I fully agree with the position taken by Mr Tivadar
for the following reasons;
As
regards S.I. 33 of 2019, I have already concluded that this
instrument did not operate to prohibit the payment of any foreign
obligation denominated in foreign currency in such foreign currency.
The status
quo ante
was explicitly saved and preserved by those provisions of S.I. 33 of
2019 that I have alluded to earlier.
Turning
to S.I. 142 of 2019, the relevant provisions for present purposes are
contained in subsections (1) and (2) of section 2, which stipulate as
follows:
“(1)
Subject to section 3, with effect from the 24th
June 2019, the British pound, United States dollar, South African
rand, Botswana pula and any other foreign currency whatsoever shall
no
longer be legal tender alongside
the Zimbabwe dollar in
any transactions in Zimbabwe.
(2)
Accordingly, the Zimbabwe dollar shall, with effect from the 24th
June 2019, but subject to section 3, be the
sole legal tender in Zimbabwe in all transactions.”
(My emphasis)
Section
3(1) of S.I. 142 of 2019 provides for savings from the ambit of
section 2. In particular, it stipulates that nothing in section 2
shall affect the opening or operation of foreign currency designated
accounts (Nostro FCA accounts) or the requirement to pay customs
duties and import or value added tax in foreign currency in respect
of such goods as are specified under the relevant tax legislation.
Section 3(2) extends the exemption from the provisions of section 2
to the tender of foreign currency in payment for international
airline services.
My
reading of section 2 of S.I. 142 of 2019 is that its operation and
impact are confined to local transactions. It obviously cannot and
does not apply to foreign transactions which ordinarily lie beyond
the reach of purely domestic legislation. At any rate, this is
clearly evident from the particular wording of the provision which
expressly refers and relates to transactions in Zimbabwe.
By
the same token, I take the view that section 2 of S.I.142 of 2019
does not extend to the discharge of foreign loans and obligations
denominated in any foreign currency. This is so for two fairly
obvious reasons;
(i)
Firstly, it would be commercially incongruous and internationally
unacceptable to attempt to settle any foreign loan or obligation in
local currency, unless this is mutually agreed between the parties
involved.
(ii)
Secondly, and more importantly, the exemption from the scope of local
currency in respect of foreign loans and obligations is explicitly
preserved and embodied in section 44C(2)(b) of the Reserve Bank Act
itself. The restrictions imposed by S.I. 142 of 2019 are contained in
regulations made under the very same Act. It is trite that subsidiary
or subordinate legislation cannot override or purport to alter,
whether expressly or impliedly, anything contained in its parent or
enabling statute, or indeed in any other Act of Parliament. This
proposition is so axiomatic that it requires no case law or other
learned authority to support it.
There
is yet a further reason for taking a restrictive view of the scope
and operation of section 2 of S.I. 142 of 2019. This arises from the
juridical import of what is meant by “legal tender”.
In
this context, it is the State, which is generally responsible for
regulating its monetary system, that issues its own currency to serve
as the universal means of exchange within its own boundaries. See
Proctor: Mann
on the Legal Aspect of Money
(7th
ed. 2012), at pp. 12 & 15.
To
similar effect, Goldberg: Legal
Tender
SSRN (2008), at pp. 7–8, observes that it is the Government which
typically accords the status of legal tender to any currency which it
has itself issued. Thus, when the law confers legal tender status
only on the Government's currency, it implicitly allows the
Government to reject any other currency as a medium of payment.
Insofar
as concerns transactions between private persons and entities,
Goldberg (supra),
at p. 4, points out that the “legal tender” concept originates in
contract law and entitles the payer to settle a contractual
obligation in whatever currency or medium of payment that has been
declared by law as acceptable legal tender. Conversely, a buyer does
not enjoy the same leeway in attempting to settle a contractual
obligation through any medium of payment that is not recognised as
legal tender within the State concerned.
The
same point is underscored by Proctor (supra),
at pp. 11-12:
“If
a country's system of trade and commerce is to be based on money as
a means of exchange, then the law must buttress that position and
allow for the assured discharge of monetary debts by payment in that
medium. Thus, the
law must require that creditors accept payment through that medium –
in other words, the creditor must accept payment in legal tender.”
(My emphasis)
To
conclude on this aspect, the concept of “legal tender”, in its
ordinary signification, denotes money or currency in official
circulation that must be accepted if offered in payment of a debt.
In
the realm of contractual relations, what this means is that the
debtor is entitled to settle his debt through the medium of legal
tender and, conversely, the creditor is obliged to accept that
tender.
The
latter has no choice or latitude in the matter.
On
the other hand, unless explicitly proscribed by statute (as discussed
below), there is nothing under the common law to preclude the debtor
from discharging his debt in any currency or medium of exchange other
than the officially designated legal tender, including any foreign
currency, so long as the creditor is prepared to accept such payment
in settlement of the debt. This arises by virtue of the time-honoured
doctrine of freedom of contract which, in my view, remains intact and
unimpaired by the provisions of S.I. 142 of 2019.
In
any event, as I have already emphasised, these provisions do not
operate to override or detract from the explicit import of section
44C(2)(b) of the Reserve Bank Act in relation to the repayment or
settlement of foreign loans and obligations in foreign currency.
I
have earlier alluded to the wide impact of S.I. 212 of 2019, to wit,
the Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic
Transactions) Regulations 2019, promulgated on 27 September 2019.
The
term “domestic transaction” is very broadly defined in section
2(1) of the Regulations, subject to section 4, to encompass virtually
every conceivable commercial transaction within Zimbabwe. Section
3(1), which is also subject to section 4, expressly prohibits the
payment or receipt of any currency other than the Zimbabwe dollar, as
the price or consideration payable or receivable in respect of any
domestic transaction. Section 4 enumerates those transactions which
are excluded from the scope of the definition of “domestic
transaction”. Of particular relevance for present purposes is
section 4(e), which excludes “transactions in respect of which any
other law expressly mandates or allows for payment to be made in any
or a specific foreign currency”.
As
I have already concluded, the transaction in
casu
gave rise to a foreign obligation denominated in foreign currency. By
virtue of section 44C(2)(b) of the Reserve Bank Act, as read with
section 4(1)(d) of S.I. 33 of 2019, that obligation continues to be,
and is therefore allowed by another law to be, payable in a specific
foreign currency, i.e.
the United States dollar.
It
follows that the underlying transaction is excluded, by dint of
section 4(e) of S.I. 212 of 2019, from the scope of the prohibition,
imposed by section 3(1) of that instrument, against the payment or
receipt of any currency other than the Zimbabwe dollar in respect of
any domestic transaction.
It
follows from all of the foregoing that the third ground of appeal
cannot be sustained.
Statutory
Instrument 142 of 2019, or any other relevant or applicable law, did
not make it impossible for the appellant to discharge its outstanding
contractual obligation to pay the sum of USD31,400.00 to the
respondent in foreign currency.
Present
Status of S.I. 33 of 2019 and S.I. 142 of 2019
For
the sake of completeness, it is necessary to address and clarify the
present status of the two statutory instruments under scrutiny in
casu.
S.I.
33 of 2019 was enacted in terms of section 2 of the Presidential
Powers (Temporary Measures) Act [Chapter
10:20]. In
terms of section 6(1) of that Act, S.I. 33 of 2019 lapsed after the
expiry of a period of 180 days. However, its provisions have been
re-enacted, with some crucial modifications, through section 22 of
the Finance (No.2) Act 2019 (Act No. 7 of 2019).
As
for S.I. 142 of 2019, its provisions have also been substantially
reproduced, in virtually identical terms, in section 23 of Act No. 7
of 2019. This Act was promulgated on 21 August 2019 and came into
operation and effect on the same date.
Section
21 of the 2019 Act inserts and re-enacts, with effect from the “first
effective date”, i.e.
22 February 2019, the entirety of section 44C of the Reserve Bank Act
as was contained in section 3 of S.I. 33 of 2019. Section 44C(2)
preserves the position of funds held in foreign currency designated
accounts as well as the continued acquittal of foreign loans and
foreign obligations denominated in any foreign currency in such
foreign currency.
As
regards the issuance and legal tender of RTGS dollars, section 22 of
the 2019 Act re-enacts the provisions of S.I. 33 of 2019, but with
certain critical changes which are not relevant for present purposes,
with retrospective effect from the first effective date, i.e.
22 February 2019. Section 23 of the 2019 Act reproduces and re-enacts
the provisions of S.I.142 of 2019, to declare in essence that any
foreign currency whatsoever is no longer legal tender in any local
transactions and that the Zimbabwe dollar shall, with effect from the
“second effective date”, i.e.
24 June 2019, be the sole legal tender in all such transactions,
subject to the original savings in respect of the opening and
operation of foreign currency designated accounts, the payment of
customs duties and import or value added tax and payments for
international airline services.
Disposition
As
I have concluded earlier, all the grounds of appeal in this matter
are devoid of merit. They cannot be sustained and must therefore be
dismissed. As for costs, there is no reason to depart from the norm
that costs should follow the cause.
It
is accordingly ordered that the appeal be and is hereby dismissed
with costs.
GWAUNZA
DCJ:
I agree
MAKONI
JA:
I agree
Machinga
Mutandwa,
appellant's legal practitioners
Maunga
Maanda & Associates,
respondent's legal practitioners
